Basics of MIS :
- Decision making.
- Decision methods.
- Behavioral concepts.
- Organizational decision making.
- MIS and decision making concepts.
- Information concepts and classification.
- Methods of data and information collection.
- Value of information, organization and information.
- Human as an information processor.
- Development of MIS and choice of IT.
Decision: a reasoned choice among alternatives.
- Where to advertise a new product
- What stock to buy
- What movie to see
- Where to go for dinner
Decision Making:– a process of choosing among alternative courses of action for the purpose of attaining a goal or goals.
Characteristics of Business Decision Making
a) Sequential in nature.
b) Exceedingly complex due to risks & trade offs.
c) Influenced by personal values.
d) Made in institutional setting & business environment.
Rational Decision Making
- Ensures the achievement of the goal.
- If it is raining it is rational to look for a cover.
- The rationality of decision made is not the same in every situation.
- It will vary with the organization.
- Any business decision if review by a share holder, a customer, an employee will result in different criticism due to difference individual’s rationality.
Steps in Rational Decision Making
- Define the problem
- Identify the decision criteria
- Allocate weights to the criteria
- Develop the alternatives
- Evaluate the alternatives
- Select the best alternatives
The Problems in Making Rational Decisions
- Ascertaining the problem
- Insufficient knowledge
- Not enough time to be rational
- The environment may not cooperate
- Other limitations
Decision Making Process
- Decision making is a process which the decision maker uses to arrive at a decision.
- The process is described by Herbert Simon in a model.
Decision Making Process
Herbert Simon’s decision making model
- Decision process modeled as a “flow” of events
1. Intelligence Phase
- Collect raw material
- Process & examine
- Identify the problem calling for decision
2. Design Phase
- Identify the key variables
- Create model to aid decision making.
- Identify the alternative solutions.
Example of Statistical Model-Factory
3. Choice Phase
- Select one alternative as a decision, based on the selection criteria.
- Selection criteria such as max profit, least cost, least time.
4. Implementation Phase
- Implement the decision
- Make adjustments
Types of Decision Making System
There are two types of systems based on the managers knowledge about the environment.
- Closed decision making system
- Open decision making system
Closed decision making system
- Known set of decision alternatives.
- Outcomes are known.
- The manager has model or rule.
- Based on some goal manager can choose one of them.
- Eg: examination system to declare pass or fail, fixed deposits.
Open decision making system
- Manager does not Know all the decision alternatives.
- Outcome of decision is not known fully.
- No method, rule or model is available to study.
- It is difficult to decide an objective or goal.
- Eg: Pricing of a new product, plant location
Goal of MIS
- MIS tries to convert every open system into closed system by providing information support.
- MIS gives information support so that manager knows more & more about environment.
Nature of Decision
- Decision making is a complex situation.
- To resolve the complexity, the decisions are classified as programmed & non programmed decisions.
- Decision can be based on a rule, method or even guidelines.
- If such rules can be developed then MIS can be designed to make a decision.
- The system in such case plays a role of decision maker based on a given rule or method.
- Decision which can not be made by using rule or method.
- Such decisions are infrequent.
- MIS can help to some extent in identifying the problem.
- MIS can develop support system in the non-programmed decision making situation.
Behavioural Concepts in Decision-Making
1.One manager may not the same as that of other managers.
2.They differs on the behavioural platform.
3.The manager differ in their approach towards decision making in the organization.
4.They can be classified into two categories
- Achievement Oriented
- Task Oriented
- Looking for excellence
- Always opt for the best.
- He will be scientific & therefore more rational.
- Looking of completion of the task somehow.
- Achievement doesn’t matter.
1.The managers personal values will influenced.
2.Behaviour is influenced by position he holds.
3.Behaviour is also influenced by fear & an anxiety.
4.The managers personal values will influenced.
5.Behaviour is influenced by position he holds.
6.Behaviour is also influenced by fear & an anxiety.
Methods for Deciding Decision Alternatives
1.There are different methods to help the manager decide among the alternatives.
2.There are methods for selection of decision alternatives with the goals.
- Optimization Techniques.
- Payoff Analysis.
- Decision Tree Analysis.
- Linear Programming, Integer Programming, Dynamic Programming, Queuing Models & so on are examples of optimization techniques.
- Computer algorithms and programs are readily available to handle many problems of this class.
- The major problem is to construct the model correctly.
- Decision Theory provides a rational framework for choosing between the different alternatives when the choices are imperfectly known.
- The theory provides techniques for mathematically evaluating the outcomes of alternative action in a given situation.
- In all cases decision maker has an objectives (eg. Maximize profit)
- Two methods: Payoff Matrix & Decision Tree
- When all the alternatives & their outcomes are not known with certainty.
- The payoff matrix consists of rows for the alternatives or strategies available and columns for the conditions that affect the outcomes.
- Each cell contains the payoff (the consequences) in dollars if that strategy is chosen and that state occurs.
Example 1: The Anniversary Problem
You are suddenly driving home from work in the evening when you suddenly recall that your wedding anniversary comes about this time of year. In fact, it seems quite probable, (but not certain), that it is today. You can still stop at the local florist and buy a dozen roses, or you may go home empty-handed and hope the anniversary lies in the future.
Decision Tree for Anniversary Problem
Possible Outcomes (States of Nature)
A planning model is a method for structuring, manipulating & communicating the future plans.
Simple Profit Model:
Sales = input variable
Cost of Sales = 0.4 x sales
Gross Margin = sales – cost of sales
Operating expenses = input variable
Profit before taxes = gross margin – operating expenses
Taxes = 0.48 x profit before taxes
Net Profit = profit before taxes – taxes
The Role of Models in Decision Making
- A major characteristic of decision-making is the use of models.
- A model is a simplified representation or abstraction of reality.
- It is usually simplified because reality is too complex to copy.
- Basis idea is that analysis is performed on a model rather than on reality itself.
- An organization is an arrangement of individuals having different goals.
- Each individual having different powers & rights.
- Hierarchy of goals which may be conflicting, self defeating & inconsistent.
- In case of inconsistent goals, the conflict in the organization increases.
- The organizational decision making should help in the resolution of such conflicts.
Dealing with Uncertainty.
- The organizations perform in an environment of uncertainty.
- Ex. Market uncertainty, the price fluctuation, the changes in govt policy, technology changes are some factors which make the business envt uncertainty.
- Org. behaviour towards minimizing the risk in decision making.
- Learning provides a strength to review the goals.
- Learning provides to set goals more correctly.
- As the time progresses, the org. may have new set of goals & objectives.
- Org. may take a fresh look at the alternatives, outcomes, methods.
- Adopting such methods the org builds skills & capabilities in mgt.
MIS & Decision Making
- Simon Model
- Programmed Decision
- Non programmed decision
- Closed & Open Decision Making system
- Organizational & Behavioural aspects.
- Information is equivalent to the finished goods produced after processing raw material.
- The information has a value in decision making.
- Information brings clarity & create intelligent human response in the mind
Information has following characteristics.
- Improves representation of an entity.
- Updates the level of knowledge.
- Has a surprise value.
- Reduces uncertainty.
- Aids in decision making.
- Presentation of information is an art
- The data can be collected in best possible manner & processed analytically.
- Method of improving communication is message routing.
- Knowledge is a power & an intelligent person can misuse this power.
Information: A Quality Product
1.Information is a product of data processing.
2.The manager will determine the quality of information.
3.The quality of information can be measured on the four dimensions
The utility dimension has four facets:
- The form,
- The time
- The access
- The possession
Parameters Impacting Quality
Classification of Information
- Action Versus No-action Information
- Recurring Versus Non-recurring Information
- Internal Versus External Information
- Planning Information
- Control Information
Methods of Data & Information Collection
- Subjective Estimation
- Transaction Processing Purchased from outside
- Government agencies